Hong Kong Securities Regulator Explores New Licensing for Crypto OTC Services

Hong Kong is considering having its securities regulator oversee over-the-counter (OTC) crypto trading services, in collaboration with the Customs and Excise Department (C&ED).

The South China Morning Post reported Thursday that the Securities and Futures Commission (SFC) has pursued feedback from industry players on a new licensing framework for crypto OTC services. As a result, both the SFC and the C&ED may jointly supervise these firms.

Hong Kong Proposal Requires OTC Crypto Traders to Obtain Licenses and Meet AML Standards

This follows Hong Kong launching a consultation on regulating OTC crypto trading in February this year. That consultation aimed to create a licensing framework for virtual asset OTC services. Under this plan, operators must obtain licenses and adhere to anti-money laundering and counter-terrorist financing regulations.

The proposal specified that anyone trading virtual assets in Hong Kong must obtain a license from the Commissioner of Customs and Excise (CCE). However, Virtual Asset Trading Platforms are exempt, as they are already regulated under the SFC. The most recent development extends the SFC’s regulatory oversight to this sector.

The SFC didn’t return Cryptonews’ request for comment by press time.

Hong Kong’s $64B Crypto Influx Driven by Strong OTC Market

Hong Kong’s crypto OTC services market enables high-volume trades directly between parties, frequently sidestepping conventional exchanges. According to Chainalysis, Hong Kong saw a $64b influx in crypto between July 2022 and June 2023. A significant portion of this activity can be attributed to the city’s robust OTC market.

The government’s focus on regulating OTC services, particularly after incidents like the JPEX scandal, highlights its move to establish a legitimate market. This emphasis could attract more investment into Hong Kong’s crypto sector, possibly leading to the OTC market’s growth.

Additionally, the SFC has been in discussions with companies about introducing a new licensing framework for cryptocurrency custodian services. According to SCMP, these discussions are still in the early stages.